Real Estate Law

The regulation of storm water from construction activities has the attention of enforcement agencies at the federal and state level. The most recent example is the $625,000 fine paid by Ryland Group Inc. to the United States Environmental Protection Agency (EPA) for storm water violations at construction sites. Both the EPA and the Virginia Department of Conservation and Recreation (DCR) have published new regulations controlling storm water generated by construction activities. Since DCR published a Storm Water General Permit for Construction Activities before the EPA finalized its regulations, construction sites in Virginia that obtain the state general permit have to comply with their permit, but not with EPA regulations. EPAs regulations will become effective in Virginia as they must be incorporated into the state general permit when it is renewed in 2014. EPA is working on developing a turbidity standard that will limit the amount of suspended solids in discharge from construction sites.

There are many risks associated with the acquisition of real property. Risks include the existence of liens on the property, the person or entity conveying the property not actually having authority to convey the property, previously granted use restrictions, errors in the legal description, and boundary descriptions that are inconsistent with areas actually being used or thought to be the boundaries of the property. The acquirer relies on the conveying party to disclose any issues, and for an examination of the public records to disclose everything. However, errors and oversights occur, and in some instances there are prior agreements that are not recorded, or are not correctly recorded, among the public records. To minimize the risks that may occur due to errors, oversights, and risks associated with unknown agreements, acquirers purchase title insurance.

The District of Columbia Circuit Court of Appeals clarified the requirements for an appraisal of a conservation easement in its opinion in Commissioner of Internal Revenue Service v. Dorothy Jean Simmons issued on June 21, 2011. The Internal Revenue Service (IRS) had challenged a Tax Court decision approving Ms. Simmons deductions in 2003 and 2004 for the donation of conservation easements on the facades of two buildings in an historic district in Washington, DC. The Court of Appeals upheld the Tax Courts decision.

In the first appellate decision to consider the issue, the Seventh Circuit held on May 11, 2011 that an IRS lien filed prior to the collection of rental income from property on which a bank had a prior mortgage lien did not trump the banks lien (Bloomfield State Bank v. U.S. 107 AFTR2d 2011 (May 11, 2011)). The bank had recorded a mortgage against its borrowers real estate three years before the borrower defaulted. The IRS then filed its notice of lien pursuant to Internal Revenue Code Section 6323. The bank obtained the appointment of a receiver who subsequently rented the property for the banks account. The IRS argued that the rentals collected from the borrower were similar to accounts receivable and, therefore, did not arise until after the filing of the IRS notice of lien. Under Internal Revenue Code Section 6323, an IRS lien is not valid against the holder of a security interest until the notice of lien has been filed. One condition to having a security interest is that the property which is the subject of the security interest must be in existence. Rejecting the governments argument and reversing the lower court, the Seventh Circuit held that the real estate on which the bank had the lien was the property that needed to be in existence, not the rental income; the rental income was simply proceeds of such property. The Seventh Circuit noted that the lower district courts and bankruptcy courts had reached divergent conclusions. This case, however, should give lenders some comfort and help other Circuits that might address the issue. --Barry W. Hunter

Some developers may still be able to amend their federal tax returns to retroactively claim Energy Efficient Home Tax Credits under Section 45L of the Internal Revenue Code as long as the return is amended before the expiration of the three year federal statute of limitations.

An earlier entry discussed the importance of succession planning for the ownership of cherished family real estate such as beach and river houses, mountain cabins, farms, hunting grounds or other family retreats. Family limited liability companies (LLCs) have become the preferred vehicle for holding, transferring and managing family property.

Included in the 2011 legislation approved by the General Assembly of the Commonwealth of Virginia are amendments that modify the conservation easement tax credit application process. The amendments (HB1820/SB1232) give the Tax Commissioner the authority, at his own discretion, to require the donor submit a second qualified appraisal of the property subject to the easement. This second qualified appraisal will be used by the Tax Commissioner to assist with the determination of the fair market value of the donation. Written notice of the need for a second qualified appraisal must be provided to the donor within 30 days of the filing of the application for conservation tax credits. The application cannot be deemed complete and will not be eligible for consideration for tax credits until the fair market value of the donation has been determined by the Tax Commissioner. The amendments require that the Tax Commissioner make a final determination of the fair market value of the donation within 180 days of the notice that a second qualified appraisal is required. The amendments add language that offer the donor the right to appeal any decision of the Department, including the decision that a second qualified appraisal is required,in accordance with the current provisions for requesting appeals regarding actions of the Tax Commissioner.

Planning for long-term enjoyment of cherished real estate is increasingly important to families today. Beach and river houses, mountain cabins, and farms which have long served as family vacation places, hunting grounds or retreats can be preserved for the use and enjoyment of future generations through careful legal planning.

The new 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys (the 2011 Standards), which have been approved by the National Society of Professional Surveyors, the American Land Title Association (ALTA) and the American Congress on Surveying and Mapping (ACSM), will take effect February 23, 2011. The new 2011 Standards replace the currently effective 2005 standards. As of February 23, 2011, all previous versions of the Standard Detail Requirements for ALTA/ACSM Land Title Surveys are superseded by the 2011 Standards. Click here to viewacomplete copy of the revised 2011 Standards available free of charge on-line on the ACSM website.[1]

When structuring a historic tax credit transaction, tax practitioners regularly compile and apply IRS rules, regulations and court decisions. Practitioners and other members of the tax credit community are keenly interested in the outcome of two recent key cases.

An interesting recent opinion issued by the Virginia Supreme Court in February 2010 is certain to impact principal-agent relationships and the payment of real estate commissions in commercial and residential transactions. In C. Porter Vaughan, Inc. Realtors v. Most Rev. Francis X. DiLorenzo, Bishop of the Catholic Diocese of Richmond, 279 Va. 449, 689 S.E.2d 656 (2010), the Supreme Court concluded that the statute of frauds was not a bar to an oral agreement to pay a real estate brokers commission in a commercial real estate transaction.

A federal district court judge in Richmond, Virginiahas allowed a personal injury case to proceed against the owner of an apartment complex based on a theory of liability that mold was present in the plaintiff's apartment in violation of Virginia's Uniform Statewide Building Code (specifically Part III, Maintenance). This early decision in the case does not establish that the defendant owner of the apartment complex will ultimately be liable (i.e., the defendant still has a chance to prove that it did not violate the Building Code or that its violation was excusable) but the decision does represent a potentially precedent setting theory of liability of which apartment owners should be aware. --Timothy O. Trant II